LAHORE: Experts are still skeptical that the new IMF program into which we intend to get would not resolve our economic issues unless we simultaneously take measures needed at the government end.
The IMF dictates its terms based on our past performance. For instance, it was concerned with our ever-increasing circular debt in the power and energy sectors. It showed that our cost does not match our expenditure. The logical thing was to increase the power and gas tariffs to at least reduce the circular debt. However, we have seen that the circular debt continued to increase despite hefty increases in power tariff in the last 5 years. The tariffs have more than doubled but the circular debt continues to rise. This shows that the problem is not with the tariff but with governance. We cannot expect any improvement in the finances of these two sectors if we continue to tolerate an increase in power theft, non-collection of power and gas bills, and ignore the widespread corruption in purchases and contracts in these sectors. The IMF would further pressurize the government to increase tariffs as the circular debt is still uncontrolled. The IMF tranches would partly be consumed in addressing the circular debt instead of investing in bankable infrastructure projects.We are paying our sovereign debt by taking loans both domestically and internationally, yet we dole out concessions, subsidies, tax exemptions worth Rs5,000 billion to most of those that are already basking in wealth. Withdrawing tax exemptions, subsidies, and concessions would at least enable the state to pay back its debt liabilities without seeking any loan in this respect.
Property tax is a major source of revenue in all developed and developing economies. In Pakistan, we have given exemption in this sector as well. Most of the 5 marla properties are exempt from property tax. The widows are exempted from property tax on residence of any size. The retired government servants also enjoy tax exemption on the residence they live in. Economist Dr Hafeez Pasha, after a study, estimates that if only large houses of over 500 square yards are properly taxed, the state could generate Rs800 billion per year. This amount could be used for meaningful development.
Traders account for 20.1 percent of the GDP and they are mostly out of the tax net. This is the reason that their share in total tax deposits is only 5.1 percent. They prefer cash transactions only. If they could be forced through technology to accept digital payments, most of them would come under the tax net and net tax would be around Rs1.2 trillion (and not Rs500 billion as envisaged under the new Asaan tax scheme). It would cover 70 percent of the general expenditure of the federal government including salaries and pensions.
The big landlords own 1 percent of the cultivable and most fertile agricultural land in the country. They make hundreds of billions annually from agriculture but cumulatively pay around Rs2 billion agricultural income tax yearly. Experts say if the top 2 percent of the landlords with a minimum land holding of 2 acres are properly taxed, the state could net Rs500 million which would be enough to fund the Benazir Income support program.
Privatizing loss-making public sector entities would be an icing on the cake as it would save the national exchequer by Rs800 billion annually.Moreover, for further savings, the federal government should close departments whose functions were delegated to provinces under the 18th amendment.